Revenge of the Accounting Authorities?

[Dover]

The Financial Accounting Standards Board took plenty of heat in April for loosening mark-to-market guidelines, a move that critics assailed as a gift to the financial industry and a nod to political pressures.

The FASB's latest idea, however, if seen to completion, would go a long way toward silencing accusations that the rulemakers have gone soft on banks.

Under consideration: an unprecedented proposal to vastly widen the use of mark-to-market accounting, so that it becomes the default method for valuing financial instruments, including loans that banks plan to hold to maturity. If adopted, the rule could set off a new wave of writedowns at a time when investor confidence in banks is fragile at best.

Proponents say that stricter use of mark-to-market would simplify accounting rules and give investors a clearer picture of companies' financial health. The opposition, led by the bank lobby, says it is unfair to make companies absorb the blow of falling market values for loans they have no intention of selling. And they say that new questions would be raised as to how to value specialty loans and other assets for which there are no ready markets.

Debate on the issue has been relatively muted because the FASB has not yet initiated its formal process for considering new rules. But a July board meeting gave observers the most detailed look yet at the ideas being floated, and the topic is on the agenda again for a FASB meeting scheduled for Thursday, when a formal proposal may get hammered out.

The American Bankers Association is trying a nip-it-in-the-bud approach, publishing a position paper earlier this month and sending a letter to accounting standards-setters in advance of an official public comment period...cont'd

http://www.americanbanker.com/issues/174_153/revenge_of_the_accounting_authorities-1000862-1.html

[notesdev]

1. Is it butt-covering time already?

Smells like the shit is about to hit the fan. The FASB has been a major enabler all along allowing mark-to-fantasy in the first place. When the FDIC needs to come and clean up these messes, we're taking 40% losses across the board. So a good rough estimate is that these things are valued an average of about 40% above what they're really worth.

Even though the horse is already miles away, now is as good a time as any to shut the barn door.